Bankrupt United to reapply for loan, start low-cost carrier

Friday, December 13, 2002The Associated Press

HERNDON, Va. -- Bankrupt United Airlines plans to launch a low-cost carrier next year to compete with Southwest Airlines and others as it attempts to regain financial footing by negotiating pay cuts and trying again for a government loan guarantee, the airline's chairman said Thursday.

Glenn Tilton, who met with United employees at Washington Dulles International Airport, said the new carrier would operate much like Dallas-based Southwest Airlines, with point-to-point service of low-cost routes without layovers.

The service also would be similar to Shuttle by United, which operated on the West Coast and was shut down last year because of cost and competition.

Tilton said he was negotiating with union leaders and wants the still-to-be-named subsidiary to start operating next year.

United officials said the West Coast is one of several areas the airline is considering for the service, but no decisions have been made. Delta Air Lines, based in Atlanta, plans a similar service for the East Coast next year.

United's plans are part of the Chicago-based carrier's effort to create a business model that will win government approval for a loan guarantee.

The Air Transportation Stabilization Board last week rejected United's request that the government back $1.8 billion of a $2 billion private loan package.

The nation's No. 2 airline filed for bankruptcy protection Monday in the largest such filing in aviation history. United has lost $4 billion in the last two years because of a slumping economy, flawed business strategies and last year's terrorist attacks.

It faced debt payments of $875 million this week, which it could not make.

The government board said the business plan United submitted for the loan guarantee was "not financially sound," and was "fundamentally flawed."

Tilton said he plans to submit a new business plan to the board "as soon as we have it stitched up."

"We'll be talking to them about the prospect of their partnership in our exit from bankruptcy," which Tilton estimated will take about 18 months.

United needs to make steep labor and other cost cuts to emerge from bankruptcy in 2004 as planned and to keep its $1.5 billion interim financing intact. The airline has said it will go beyond the $5.2 billion in labor cuts it proposed by 2008 in its application to the government.

Tilton said he is talking to union leaders about pay cuts. He said he hopes it will be an "equitable and fair process in deciding who can make what level of contributions to a more competitive cost structure as we go forward."

The stock of United's parent, UAL Corp., rose 30 percent after the company said it obtained a court order two days earlier temporarily restricting large shareholders, including its employee-owners, from selling their shares. The court order will remain in effect until a Dec. 30 bankruptcy court hearing.

Shares in UAL climbed 36 cents to close Thursday at $1.57 on the New York Stock Exchange, driven by speculators who have been especially active since the company went into Chapter 11.

State Street Bank and Trust, which manages UAL's employee stock ownership plan, already sold more than a third of the workers' 55 percent stake in the company between Sept. 27 and Dec. 6, according a Securities and Exchange Commission document filed this week.

Separately, United announced it will not implement the $100 fee it had planned to charge U.S. customers to stand by for earlier or later flights the same day. The same-day standby fee policy was announced in September and was scheduled to take effect Jan. 1.

United operates about 1,700 flights a day or about 20 percent of all U.S. flights. The airline has promised to keep flying during bankruptcy as it tries to return to profitability.